Canadian Banks to Receive Millions of Funds to Administer Government’s COVID-19 Small Business Loan Program

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All of Canada’s major banks have programs in place to help customers apply for the program, and to date $ 15.3 billion has been awarded to businesses across the country.

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OTTAWA – Canadian banks are set to get tens of millions of dollars to manage the government’s loan program designed to put money in the hands of small businesses.

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The government launched the Canada Emergency Business Account (CEBA) program on April 9, allowing businesses to apply for up to $ 40,000 in government-guaranteed interest-free loans from their banks. If companies manage to repay 75% of the loan by December 31, 2022, the remaining 25% of the loan will be canceled.

Companies also had to have a payroll of between $ 20,000 and $ 1.5 million to be eligible for the program.

All of Canada’s major banks have programs in place to help customers apply for the program, and to date $ 15.3 billion has been awarded to businesses across the country.

Under the terms of the agreement with the previously undisclosed banks, financial institutions will get 0.4 percent of any outstanding program balances per year. If, for example, the $ 15.3 billion that was paid were still unpaid at the end of the first year, the banks would receive just over $ 60 million.

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The program was part of a series of efforts to support small businesses, which also included the wage subsidy program and a rent relief initiative that was announced last week.

Anna Arneson, a spokeswoman for the Department of Finance, said the fees are intended to cover the costs of administering the program by banks, including updating customers on their balances.

They are not going to pay it early because they are entering a slow economy and they are going to need that cash flow

“The fees are intended to reflect the cost of servicing the financial institutions providing the loan, for the life of the loan, in a manner similar to how a financial institution would treat the loans it has taken out,” a- she said in an email. “It is not intended to include a profit margin for financial institutions.”

She said the government is also doing an independent review of the program, and if the costs to the bank are lower than initial estimates, their fees may be reduced.

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NDP MP Gord Johns said Canadian banks could have supported this program without charging the government, acknowledging it would help many of their customers have money in their pockets.

“It would have been a generous offer if they had said we were going to administer it, it’s something we can do,” he said. “The big banks haven’t come to the table and they have to. “

Johns said most businesses will need cash over the next few years and won’t rush to repay the loan, allowing banks to collect these fees for several years.

“They’re not going to pay it off early because they’re going into a slow economy and they’re going to need that cash flow.”

He said he was disappointed that the banks had made only small interest rate cuts and heard from many voters who believe the banks could do a lot more to help.

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“I get calls from small businesses that are unable to defer mortgages longer than a month, that do not have access to lines of credit.

He said the government should have taken a tougher stance on the banks to get more support from Canadians.

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“The government must have had an increasingly difficult conversation with the big banks. “

Conservatives have also criticized the program for excluding family businesses by requiring people who apply to have a payroll, noting that many family businesses pay dividends to family members.

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Mathieu Labrèche, spokesperson for the Canadian Bankers Association, said the government has worked with the banks to ensure that the money can flow out of businesses quickly. He said the banks have worked very quickly and only cover their costs with the program.

“Canada’s financial institutions will continue to support the program on a cost recovery basis throughout the process,” he said.

Labrèche said the government sought help from the banks for a number of programs, including the wage subsidy, and they did so eagerly.

“Asking banks to implement these programs costs a lot less and is more efficient than letting the government do it itself,” he said.

Labrèche also pointed out similar programs in the United States that cost significantly more. The American Small Business Administration supports larger business loans there, but banks in the United States charge higher fees.

For loans under $ 350,000, US banks may charge a five percent fee on the loan, this percentage decreases as loans get larger, but even with loans over $ 2 million, banks charge a one percent fee.

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